Bank of America Continues the Financials Hot Run with Solid Earnings

Bank of America (Ticker Symbol: BAC) reported earnings before the open on Wednesday that were better than analysts’ expectations.  The American multinational bank and financial services company reported an earnings per share earnings beat of .74 cents per share vs. Wall Street analysts’ estimates of .71 cents per share.  Bank of America reported revenues of $23.2 billion which was right in line with Wall Street’s expectations. However, revenue generated from equities trading was $1.15 billion vs. $1.22 billion that Wall Street analysts’ were looking for.  Additionally, fixed income trading dropped 8% to $2.13 billion. Bank of America did have a record profit for the first half of the year, led by gains in its retail lending operations.  

The Federal Reserve reported its annual stress tests to measure the financial health of the top financial institutions in the country at the end of June.  The Federal Reserve released that the top U.S. banks passed the stress tests and that they would be allowed to pay capital out to their shareholders. After the results of the test, Bank of America increased its dividend by .03 cents to .18 cents a share.  The bank also announced an increase to its stock buyback program raising its total amount of stock repurchases to $30.9 billion.  

Above is the long term monthly chart of Bank of America’s stock spanning back 30 years. The stock spent the early 1990s trading between the price levels of $4.00 and $14.00.  In the third quarter of 1995, Bank of America broke out of its five-year trading range and went on to rally over 200% before finding resistance at the $44.00 dollar price level. ​During that time, the stock began to top, forming a bearish divergence pattern, as indicated on the chart by the purple circles, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend, as occurred in Bank of America’s case.  

From 2009-2017, the stock traded in an ascending triangle pattern.  In this pattern, the top part of the triangle appears flat and the bottom part of the triangle has an upward slant, making higher lows. ​Buyers come in at the lows and prices perk up, only to re-test highs. Buyers usually win the battle and the stock generally breaks higher, as occurred in Bank of America’s case.  The stock broke out of its eight-year-long triangle in the fourth quarter of 2016, to rally over 70%. Currently, the stock is trading just above its 100-Month Moving Average.  

(Chart above courtesy of ​​)  

Based on a survey of 4 analysts offering 12-month price targets, the average price target for Bank of America stock is $33.00. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $29.19.

So far this quarter Citigroup, J.P. Morgan Chase, Wells Fargo, Goldman Sachs, and Bank of America have all beaten Wall Street analysts’ earnings expectations. Long-term investors are being rewarded for holding Bank of America’s stock through its capital appreciation and its yearly payouts through dividends.  Investors in the financial sector should look to Capital One and SunTrust Bank’s earnings release on July 18th for fresh news within the sector.  


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